Estate Planning

Question 1

What is the purpose of estate planning?

Answer 1

Making advance arrangements to ensure assets are preserved & distributed in the manner the deceased intended.

Question 2

What are the 4 objectives of estate planning?

Answer 2

1. Minimize estate transfer costs.
2. Assure estate liquidity.
3. Plan for efficient use of estate assets.
4. Ensure assets go to desired beneficiaries.

Question 3

What aspects of estate planning do not require a will and pass through directly to the beneficiary?

Answer 3

-Your 401(k) plan
-Other retirement savings plans
-Life Insurance

Question 4

What assets are not part of probate (not governed) by a will?

Answer 4

• IRAs with designated beneficiaries
• Life insurance proceeds not owned by the decedent
• Property owned jointly with right of survivorship

Ownership transfers to surviving owners when one of the owners dies

Question 5

What did the Supreme Court case involving the deceased David Egelhoff serve as an example for?

Answer 5

Be sure your beneficiary designations are up to date. David Egelhoff didn’t before died shortly after his divorce. His children sued to collect his insurance and pension benefits. The Supreme Court awarded benefits to his ex-wife Donna in a warning to everyone to keep their designations current.

Question 6

“Estate planning isn’t just about avoiding estate ____; it’s also about getting your assets to the ________ in the ________”

Answer 6

taxes, right people, right way

Question 7

No matter what your will says, your retirement accounts and proceeds from your life insurance usually go to ___________.

Answer 7

the beneficiaries

Question 8

If you own property jointly with __________, that asset will typically go to the survivor, even if you left the property ____________________.

Answer 8

right of survivorship, to somebody else in your will.

Question 9

Life-insurance proceeds avoid estate tax, _______________________________.

Answer 9

provided the decedent doesn’t own the policy.

Question 10

When you die, the cost basis of assets such as your stocks and your home are stepped up to the current ___________ so that the potential capital-gains tax bill disappears.

Answer 10

market value

Question 11

What 3 factors result in estate shrinkage?

Answer 11

1. Debts
2. Administrative Costs
3. Death taxes - Major Reason

Question 12

What is the average amount of debt that normally must be paid off before remaining assets are distributed to any heirs?

Answer 12

4-8% of total assets

Question 13

What are typical debts that must be paid off before remaining assets are distributed to any heirs?

Answer 13

mortgages
credit card account balances
installment loans (car loans)
income taxes due

Question 14

What are typical administrative costs incurred during estate planning?

Answer 14

1. Appraisal fees
2. Brokerage fees
3. Court costs
4. Legal fees
5. Accounting charges
6. Insurance premiums for property & liability insurance on estate assets.

Question 15

What is the executor of an estate?

Answer 15

Executor of an estate is a person appointed to carry out the terms of the deceased person’s will.

Question 16

If you name a beneficiary in a life insurance policy, you ________________.

Answer 16

save on administrative costs.

Question 17

If you die without a will, you die __________. The court appoints an administrator to fulfill executor duties. The state decides who gets what and claims a big share.

Answer 17

intestate.

Question 18

What are the “death taxes” that are paid after a death?

Answer 18

1. Federal estate taxes – levied upon the transfer of property at death. Must be paid before assets are distributed.
   Assets may be sold if estate is not liquid
   enough to pay taxes.
2. State inheritance taxes

Question 19

How is the federal estate calculated?

Answer 19

Value of property owned + decedent’s interest in
jointly owned property minus:
– Funeral and burial costs
– Debts
– Estate admin. (court costs/legal fees)
– Income taxes due
* Deductions:
▫ Marital deduction – transfer property to spouse
free of estate taxes
▫ Charitable deduction

Question 20

How much is allowed to be gifted per year?

Answer 20

$16,000 per donee per year, married couples $32,000

Question 21

Unified transfer tax credit eliminates all estate taxes for 2022 taxable estates of ________________.

Answer 21

$12.06 million or less

Question 22

Top estate tax rate for 2022 is _____.

Answer 22

40%

Question 23

What are the estate planning tools?

Answer 23

1. Will
2. Marital Deduction: Eliminates all estate taxes payable upon death of 1st spouse
3. Gifts
4. Trusts
5. Life Insurance
   - Second to Die: Pays out only after both insured have died, less expensive coverage
   - Buy: Sell Agreement - Two business partners may each own life insurance on the life of the other person; necessary funds are available to buy deceased partner’s share

Question 24

What is a trust?

Answer 24

Transfer of property from a donor to a trustee for the benefit of one or more beneficiaries

Question 25

What is a living trust?

Answer 25

A trust established while donor is still alive

Question 26

What is a testamentary trust?

Answer 26

A trust created at donor’s death through his or her will

Question 27

What is a credit shelter trust?

Answer 27

A trust used by married couples to decrease estate tax liability that must be paid at death of second spouse

Question 28

What is a life insurance trust?

Answer 28

Life Insurance Trust – will collect, invest, and distribute proceeds to benefit beneficiaries; can specify how proceeds are to be invested; more flexibility

Question 29

What is a charitable remainder trust?

Answer 29

Charitable Remainder Trust – estate planning device into which stocks can be placed and sold without incurring capital gain taxes; trust generates a % of payout to the donor until her death. Trust passes to designated charity

Question 30

What is a revocable trust?

Answer 30

Can change or amend the trust while you are alive.

Question 31

What is an irrevocable trust?

Answer 31

Can not amend the trust. Requires that you retitle all of the assets.

Question 32

What are the criteria in which to evaluate the financial strength of life insurance companies?

Answer 32

Primary:
- Quality of its investments
- Relative size of its surplus (excess of assets over liabilities)
Secondary sources:
- A.M. Best
- Standard & Poor’s (S&P)
- Moody’s
- Duff & Phelps
- Weiss